Journal of Economic Behavior & Organization Vol. 32 (1997) 19-37 JOURNALOF EcawmicBeIwilx &0lgalkti0ll Complex bubble persistence in closed-end country funds Ehsan Ahmed”, Roger Kopplb, J. Barkley Rosser Jr.aT*, Mark V. WhiteCd a Department zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA of Economics, James Madison University, Harrisonburg VA 22807, USA ’ Department of Economics and Finance, Fairleigh Dickinson University, Madison, NJ USA ’ Institute Tecnologico de Escuelas y Superiores de Monterrey, Monterrey, Spain dWhite and Associates, Mexico City, Mexico Received 12 July 1994; accepted 16 November 1995 zyxwvutsrqponmlkjihgfedcbaZYXW Abstract We seek to resolve the ‘misspecified fundamental’ problem in speculative bubbles through examining the behavior of closed-end country funds which possess well-defined fundamentals based on their net asset values. We study six funds during an episode when large premia emerged and subsequently disappeared. We apply resealed range and regime switching tests which reject the ‘no bubble’ null hypothesis for these premia. These results are placed in a complex bubble model framework interpretable according to the ‘Big Player’ model. JEL classification: (312; G15 Keywords: Asset pricing; International financial markets 1. Introduction A controversial issue in financial economics is the existence or non-existence of speculative bubbles in asset markets. A tradition dating from at least the ‘tulipmania’ of 16361637 argues that they can exist and reflect some form of irrationality or mob psy- chology in economic behavior, at least sometimes (Kindleberger, 1989). Against this tradition stands the modern efficient markets hypothesis that sees in every apparent bubble the rational taking account of an ex ante possibility that fails to be realized ex post and whose possibility cannot be observed by the econometrician, the ‘misspecified fundamental’ * Corresponding author. Tel.: 540-568-3212; fax: 540-568-3010; e-mail: rosserjb@jmu.edu 0167-2681/97/$17.00 0 1997 Elsevier Science B.V. All rights reserved PIISO167-2681(96)00017-O